Dell Shines Despite Tough Year For Industry

Third-quarter profits rose 90 percent and sales increased 68 percent at the Dell Computer Corp., and profits and sales were up in the first and second quarters, too.

All that during a year that some computer executives have characterized as one of the most brutal in the industry`s relatively brief history.

Many other companies are bleeding red ink, slashing prices, eliminating jobs -- or in the case of IBM, desperately trying to strip away the ballast of the decades.

Industry growth is expected to register barely perceptible growth, after a decade of double-digit climbing. Yet Dell`s sales for the first nine months of the year are up 59 percent, and its sales last year, $546 million, were up 41 percent from the year before.

``There`s no secret,`` said Michael S. Dell, 26, the company`s founder and chairman, whose personal wealth was recently estimated at $250 million by Texas Monthly magazine.

``In any industry, if you`re in touch with your customers, make products as good as or better than your competition`s and provide superior service and support, you`re going to do well. These are not silver bullets that we came up with here.``

Companies like the International Business Machines Corp. and the Compaq Computer Corp. have outlined essentially the same strategy for years, vowing total product quality, allegiance to the customer and complete satisfaction after the sale.

Yet IBM`s and Compaq`s shares of the personal computer market have been shrinking, while Dell and other clone makers, including Compuadd, AST Research, Gateway 2000 and Northgate, have been rising.

``With Dell, it`s not just the strategy, it`s also the implementation,`` said Esther Dyson, editor and publisher of Release 1.0, an industry newsletter, and the happy owner of a new Dell laptop.

``If you talk directly to the customer, you genuinely can add value in configuration, service and support, and people will buy your stuff and give you a margin that you can live with.``

The on-site service and exhaustive technical support is costly for Dell, and the company no longer offers the lowest prices around. This has opened an avenue for smaller companies, many patterned after Dell, to go after Dell with its own tactics.

One such company is Austin PC, which moved into Dell`s outgrown plant and is now biting Dell`s heels with lower prices and aggressive advertising. Northgate and Gateway 2000 also consistently undersell Dell.

``We`re not ignoring them,`` he said of the smaller rivals. ``We`re working actively to expand our business both above and beneath us. If you look at our growth rate, we`re probably growing at both ends of the spectrum when Compaq ignored us, we were always outgrowing them on percentage rate.``

Dell`s idea of relaxing, sometimes, is to drop in on customer service calls, the better to get the pulse of what his customers like and dislike. He also uses the computers he makes, receiving and disseminating a steady stream of data about his own customers and the industry, including his rivals.

Dell has been in touch with his customers ever since they started calling his dormitory room at the University of Texas, the first home of a company called PC`s Ltd.

More often than not, the customer works for a big company and orders tens, hundreds, sometimes even thousands of computers at a time. And more often than not, the customer used to buy computers from IBM, Compaq, Digital Equipment or some other larger and better-known company. Dell`s biggest customers include ITT Sheraton, Weyerhaeuser, Johnson`s Wax, MCI and Arthur Andersen.

A PC manager at a utility company said he switched to Dell from Compaq two years ago after becoming dissatisfied with Compaq`s policy of referring support inquiries to dealers.

The manager, who said company policy forbids lending its name to endorsing products, said the first shipment from Dell arrived in the wrong configuration.

``It was a communications mixup,`` the manager said. ``We called them on Thursday afternoon. On Friday morning, one of their guys walked in our door; he`d caught a flight the night before. A couple more came on Monday.`` The computers were fixed, and Dell now has a loyal customer.

The climb to the first rank has not been without bumps. In 1988 and 1989, Dell faced a glut of inventory and a costly retreat from a plan to design a line of computers. Months went by without a product introduction. Now Dell uses technology to avoid such pitfalls.

While Compuadd, a cross-town rival here, shuns electronic mail within its headquarters, Dell thrives on E-mail to keep executives abreast of events in the company and in the industry. It uses a product called cc:Mail, as well as Lotus Notes, which sifts information from a huge data base.